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Abstract

We study the incentives that drive behavior in redistributive institutions with various levels of enforcement. We are interested in how the opportunistic incentive to use a redistributive institution for personal gain and the desire to follow the rules of a regulated community, populated by similarly obedient individuals, interact and determine the success or failure of an institution. In the experiment, subjects can repeatedly join one of three groups, which are defined by explicitly stated injunctive norms that require to put all, half, or any amount of income to a common pool for redistribution. The treatments differ in the level of enforcement of these norms. We find that contributions are sustained only in the case of full enforcement. However, a sizeable number of subjects persist in following the norms of redistribution even after experiencing many periods of losses due to free riding. We find that subjects with strong propensity to follow norms perceive the same level of income inequality as fairer, when it was achieved without breaking the norm, and favor redistributive mechanisms with more stringent rules. This suggests that well-defined redistributive norms can create a powerful incentive for cooperation as many individuals seem to prefer stable regulated egalitarian institutions to unregulated libertarian ones. Some form of enforcement is, nevertheless, required to protect egalitarian institutions from exploitation by free riders.